Zero-rated
services are also known as “free data” services. These pro-consumer services are
mobile broadband offerings which allow consumers to access curated online
content with an exemption from monthly data caps. Typically, that means
consumers can access unlimited curated online content at no additional cost. MMTC’s
paper explores five positive impacts of zero-rated services on the Internet
ecosystem: lessening the digital divide, increasing the ability of
smartphone-only consumers, driving innovative mobile broadband business models,
spurring innovation within the entire mobile ecosystem, and empowering
consumers.

The digital divide
is characterized as the gap between individuals who are online and those who
are not. For non-adopters who have little interest in a broadband connection,
zero-rated programs can help bridge the gap by offering unlimited video or
music content, for example. For non-adopters who believe mobile broadband is
too expensive, free data services allow for more Internet usage at a lower cost
than a traditional mobile broadband subscription.

As the white paper
states:

Free data helps to address these barriers by enhancing
the value proposition for non-adopters. The ability to stream as much video and
music content as possible – activities that are among the most popular wireless
uses across every user group – could become an enticing on-ramp for non-users:
if they come to wireless broadband for unlimited Netflix streaming, they may
very well stay online and use their connections for additional, more meaningful
uses. For those who perceive broadband of any kind – wired or wireless – to be
too expensive, the promise of free data could allow them to purchase more basic
plans with lower data caps, which would deliver significant monthly cost-savings.

There is a national
trend among consumers of all
income levels
of substituting mobile broadband for fixed broadband. This trend is especially pronounced
among minority and low-income consumers. Free data services allow
smartphone-only consumers to accomplish more on the Internet without exceeding
their monthly data caps. Because streaming video does not count towards data
caps under zero-rated services like T-Mobile’s “Binge On,” smartphone-only
consumers can allocate data for other uses, such as finding directions, reading
a news article, or taking a political survey.

Zero-rated
programs are innovative business models designed to benefit the individual consumer.
A recent CTIA survey says that 65
percent of American adults are likely to sign-up with a new wireless provider
offering free data, so providers are using these services to compete with each
other. The MMTC white paper says that consumers find the personalization of
zero-rated programs attractive:

These programs have been voluntary from the start –
depending on the service provider, subscribers are free to either opt in or opt
out at any time. This builds on the modularity inherent in the modern wireless
sector, where users have significant freedom to customize their user experience
by, for example, picking and choosing which apps to install, which handset to
purchase, which network to use, and which service option best matches their
data needs.

As the number of
mobile devices and connections increases and as mobile networks upgrade to 5G
over the next several years, innovation in zero-rated services could lay the
groundwork for other personal data consumption. Although zero-rated services are
used primarily for entertainment purposes, these offerings likely will expand
into new (and arguably more important) spaces within the mobile ecosystem. Health,
energy, and dietary monitoring are becoming popular tools among mobile
broadband consumers. MMTC says that zero-rated programs could offer critical,
time-sensitive, and life-enhancing services:

For example, zero-rating certain health-related mobile
tools could prove enormously beneficial for African Americans, who, as a group,
are more likely to develop chronic diseases such as diabetes and heart disease.
Left unaddressed, these kinds of ailments incur significant healthcare costs.
But when treated in a preventative and real-time manner, there is evidence to
suggest that health outcomes in these communities improve while also helping to
realize cost-savings for patients and healthcare providers alike. These
benefits inure not just to communities of color but to everyone.

Zero-rated
services provide enhanced value and choice, especially to low-income consumers.
Because providers are offering free data services in competition with each
other and because those services allow consumers to opt in/opt out at any time,
consumers have the freedom to choose which offerings benefit them the most. MMTC
states that “this overall trend toward greater consumer empowerment, of which
free data is the most recent example, benefits all consumers in many ways – but
for communities of color and low-income households, these benefits are
especially impactful given their above-average use of mobile broadband.”

The FCC has scrutinized zero-rated services
because many critics say they violate network
neutrality principles. However, in the Open Internet Order, zero-rated
services do not expressly fall under the definition of a “broadband Internet
access service,” and therefore are not subject to Title II regulations. (At
least that is the way it was presented during the D.C.
Circuit Oral Argument in December 2015, but we are still waiting on a decision.)

During a “Fireside Chat” at Free State
Foundation’s Eighth Annual Telecom Policy Conference, Commissioner Mignon
Clyburn called it a “good thing” that zero-rated services were not discussed in
the Open Internet Order. Commissioner
Clyburn also acknowledged the pro-consumer aspects of zero-rated services.
Commissioner Clyburn explained:

One of the reasons I was honestly very vocal inside of
our house about not abandoning or not eliminating outright the other
possibility for sponsored data or zero-rated plans was because when it comes to
product differentiation and the like, it could be a good thing. It could be a
worrisome thing too when it’s used in a way which we did not envision. And
that's why we said we will look at these things on a case-by-case basis.

Commissioner
Clyburn’s observations surely cut against simplistic claims of critics that
zero-rated services categorically violate principles set out in the Open Internet Order. Even so, agency
scrutiny of zero-rated services – whether based on a vague “general conduct”
standard or some other unknown standard – results in a state of regulatory
uncertainty. Innovative and pro-consumer service offerings are stymied when
market providers cannot discern or predict what the agency's rules are and
whether their new offering will be permitted.

MMTC Vice
President and Chief Research and Policy Officer Nicol Turner-Lee stated during
the Hot-Topic
Communications Issues Panel at FSF’s conference that the FCC consistently fails
to take into account minority groups and diversity within the communications
industry. As this white paper clearly outlines, free data services are innovative
business models that benefit diverse groups across the United States,
particularly minority and low-income consumers. Any intervention from the FCC
to regulate or prohibit such offerings would show little consideration for
diversity within the communications space and would hinder upward mobility for
low-income consumers.

FSF
scholars have written frequently about the positive economic impacts of zero-rated
services and the scrutiny they have received from the FCC and foreign
government agencies. See the following selection below: